Search Results

Documents authored by Morales-Enciso, Sergio

Revenue maximization through dynamic pricing under unknown market behaviour

Authors: Sergio Morales-Enciso and Jürgen Branke

Published in: OASIcs, Volume 22, 3rd Student Conference on Operational Research (2012)

We consider the scenario of a multimodal memoryless market to sell one product, where a customer’s probability to actually buy the product depends on the price. We would like to set the price for each customer in a way that maximizes our overall revenue. In this case, an exploration vs. exploitation problem arises. If we explore customer responses to different prices, we get a pretty good idea of what customers are willing to pay. On the other hand, this comes at the cost of losing a customer (when we set the price too high) or selling the product too cheap (when we set the price too low). The goal is to infer the true underlying probability curve as a function of the price (market behaviour) while maximizing the revenue at the same time. This paper focuses on learning the underlying market characteristics with as few data samples as possible by exploiting the knowledge gained from both exploring potentially profitable areas with high uncertainty and optimizing the trade-off between knowledge gained and revenue exploitation. The response variable being binary by nature, classification methods such as logistic regression and Gaussian processes are explored. Two new policies adapted to non parametric inference models are presented, one based on the efficient global optimization (EGO) algorithm and the second based on a dynamic programming approach. Series of simulations of the evolution of the proposed model are finally presented to summarize the achieved performance of the policies.

Cite as

Sergio Morales-Enciso and Jürgen Branke. Revenue maximization through dynamic pricing under unknown market behaviour. In 3rd Student Conference on Operational Research. Open Access Series in Informatics (OASIcs), Volume 22, pp. 11-20, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2012)

Copy BibTex To Clipboard

  author =	{Morales-Enciso, Sergio and Branke, J\"{u}rgen},
  title =	{{Revenue maximization through dynamic pricing under unknown market behaviour}},
  booktitle =	{3rd Student Conference on Operational Research},
  pages =	{11--20},
  series =	{Open Access Series in Informatics (OASIcs)},
  ISBN =	{978-3-939897-39-2},
  ISSN =	{2190-6807},
  year =	{2012},
  volume =	{22},
  editor =	{Ravizza, Stefan and Holborn, Penny},
  publisher =	{Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{},
  URN =		{urn:nbn:de:0030-drops-35426},
  doi =		{10.4230/OASIcs.SCOR.2012.11},
  annote =	{Keywords: Dynamic pricing, revenue management, EGO, Gaussian processes for classification}
Questions / Remarks / Feedback

Feedback for Dagstuhl Publishing

Thanks for your feedback!

Feedback submitted

Could not send message

Please try again later or send an E-mail